Oct. 9 (Bloomberg) — In Asia’s real estate market, dealmaking just hit a record. More is coming.
Property deals in China and its Asian neighbors reached a record $34 billion last quarter, a turnaround from the global financial crisis. That tally includes $10 billion for a single site in Seoul’s Gangnam district by a Hyundai Motor Co.-led group and Singapore’s Frasers Centrepoint Ltd.’s bid of more than $3 billion, including debt, for control of Australand Property Group.
CapitaRetail China Trust, a Singapore-listed company with 10 malls in eastern China, is among the next possible targets as it trades below the $1.7 billion estimated value of its assets, said Standard Chartered Plc. Saizen REIT, another Singapore- listed trust that owns about 5,500 apartments in Japan, is also undervalued by that measure. For a global buyout firm or Hong Kong developer, buying a Chinese mall would be a way to profit as the country’s economy becomes more consumer-centric, said CBRE Inc.
“Being in retail is a natural way to frontrun that trend,” Marc Giuffrida, CBRE’s executive director for global capital markets in Asia, said by phone from Singapore. “We see very strong demand in all the key gateway markets for good- quality real estate.”
Representatives for CapitaRetail and the company that manages Saizen, Singapore-based Japan Residential Assets Manager Ltd., declined to comment on the prospects for any takeover.
Last quarter’s record announced deals for real-estate companies and investment trusts in Asia pushed this year’s total to $82 billion, according to data compiled by Bloomberg. Beijing, Tokyo and Shanghai were the top destinations for commercial property investments in Asia in the first half of 2014, Cushman & Wakefield Inc. said in a Sept. 18 report. China alone attracted 73 percent of the total.
“Asian consumers have continued to expand spending, creating vast incentives for continued investments,” Priyaranjan Kumar, Singapore-based regional director of capital markets at property-services firm Cushman & Wakefield, said by phone.
Cities across Greater China are the most attractive Asia Pacific locations for international retailers, Jones Lang LaSalle Inc. said in a June report. Economists estimate retail sales will rise at least 12 percent in each of the next three years.
CapitaRetail’s properties draw 73 million shoppers a year, more than three times the population of Beijing, the company’s website says. Almost every meter of CapitaRetail’s mall floorspace is leased to tenants including Wal-Mart Stores Inc. and fast-food chain KFC.
“Definitely, they could be a target,” said Desmond Chua, a market analyst at CMC Markets Singapore Pte. “It’s an appealing vehicle” to tap Chinese consumers, he said.
Earnings before interest, taxes, depreciation and amortization at CapitaRetail will jump 52 percent to about S$147 million ($116 million) in 2016 from last year, according to analysts’ estimates compiled by Bloomberg. Rental revenue at CapitaMall Grand Canyon in Beijing, the company’s biggest shopping center, may jump 26 percent between 2014 and 2016 as tenants sign up for more expensive leases, Standard Chartered said.
Shares in CapitaRetail have climbed 19 percent this year and closed 2.3 percent higher at S$1.58 in Singapore trading, its biggest gain in more than five months. That gains give the company a stock market value of S$1.31 billion. That compares with Standard Chartered’s estimate of S$2.13 billion, or S$2.58 a share, for CapitaRetail’s revalued net asset value.
Potential acquirers include private-equity firms and real- estate developers, CBRE said. CapitaLand Ltd., CapitaRetail’s largest shareholder with a 19 percent stake, is also a possible buyer, according to Standard Chartered.
Saizen REIT, which owns apartments in cities including Tokyo and Sapporo, also may attract suitors because it’s so undervalued, said Regina Lim, an analyst at Standard Chartered in Singapore. About 91 percent of Saizen’s units are occupied, its website says.
Saizen shares have fallen 2.2 percent this year and rose 1.1 percent to 90.5 Singapore cents at the close today, its biggest gain in more than two weeks. That compares with its net asset value of S$1.22 a share at the end of June.
Real estate prices across Japan have risen about 20 percent since Prime Minister Shinzo Abe took office about two years ago, according to an estimate by Deutsche Asset & Wealth Management. Property investment in Japan rose 70 percent to 4.6 trillion yen ($43 billion), the highest level since March 2008, in the 12 months ended March, according to the asset manager.
Residential prices in Japan’s three largest metropolitan areas increased for the first time in six years, the government said in a report last month.
Still, property owners and developers in Japan face the prospect of waning demand from a population that has shrunk every year since 2008, according to data from the International Monetary Fund. More than one in four people in Japan are older than 65, the highest proportion in the world, Bloomberg data show.
And in China, some investors are concerned economic expansion will slow. Growth will probably be 7.3 percent this year, according to a Bloomberg survey of economists last month. It would be the slowest pace since 1990.
That may not prevent bids for undervalued property companies such as CapitaRetail and Saizen.
“We could see more deals,” said Terence Wong, head of research at DMG & Partners Securities Pte in Singapore.